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A Bright Gleam from Meridian Gold


By Gary Weiss

Gold has been on a rise for a month, as economic worries and world events sent prices from $305 to $323 an ounce. Investors seeking to bet on the trend often turn to gold-mining stocks, which generally move faster than gold itself. James Vail, who runs ING Precious Metals mutual fund in New York, has been buying shares of Meridian Gold (MDG), a leading gold exploration and production company, as his way of engaging in that risky but time-tested practice.

Vail notes that gold companies have been seeking to boost their capacity, which lagged during the '90s gold doldrums. But they've generally done so by boosting production at existing mines. The Big Board-traded Meridian, which relies on production from its El Penon mine in Chile, is taking a different tack. In April, 2002, the company merged with a gold mining company called Brancote Holdings, which operates the Esquel mine in Argentina. Further development of Esquel over the next two years will double Meridian's production, currently about 315,000 ounces a year.

Vail estimates that with production costs at Brancote likely to be $110 an ounce, the Brancote mine could be a major contributor to earnings in the years ahead--unless, of course, gold prices collapse. "This company has a growth profile. If you look at most of the majors, and even some of the smaller companies, there aren't many gold companies that are showing an increase in production," says Vail. If the price of gold increases to $350, Vail believes that Meridian's shares, now at just under 19, could hit 30.

Unless otherwise noted, neither the sources cited in Inside Wall Street nor their firms hold positions in the stocks under discussion. Similarly, they have no investment banking or other financial relationships with them. Gene Marcial is on vacation.


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